Finance committee relaunches probe into offshore tax evasion with questions over Isle of Man fraud


A managing partner at KPMG told the committee that allegations the company was involved with Isle of Man sword companies and CINAR fraud are ‘false’

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OTTAWA — A Parliamentary committee on Thursday launched an investigation into how Canada can better defend against offshore tax evasion, with some MPs pressing for details around a high-profile financial fraud in the mid-2000s that robbed many Canadians of their life savings.


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Canada has for years struggled to rein in offshore tax avoidance by corporations and wealthy individuals, a shortcoming that has sapped government revenues and damaged its reputation among allies. A 2019 report by the Parliamentary Budget Officer estimates that the Canadian government is missing out on as much as $25 billion a year in revenues due to an inability to crack down on overseas tax havens.

Members of Parliament on the House of Commons finance committee began studying the broad topic of tax evasion on Thursday, including a specific focus on four offshore tax havens established in the early 2000s that are allegedly tied to one of the biggest financial frauds in Canadian history.

The four tax shelters were based in the Isle of Man, a small tax haven in the middle of the Irish Sea. Each were named after ancient swords, and became known as the “sword companies” in connection with their alleged involvement in several financial frauds, including the CINAR fraud of the mid-2000s, which cost a number of Canadian investors an estimated $120 million.


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Canadian accounting giant KPMG has become ensnared in the issue, after CBC reports claimed the company might have been involved in setting the structural templates for the Isle of Man sword companies.

KPMG admits that it set up a tax protection scheme for wealthy Canadian clients in the Isle of Man beginning in the late 1990s, according to reports by the CBC. However it has repeatedly denied any involvement with the four specific shell companies, called Sceax, Shashqua, Spatha, and Katar.

A Parliamentary investigation into CINAR and KPMG was suspended in 2016, after the accounting firm claimed that it would interfere with ongoing court cases related to the scandal. The committee study on Thursday effectively marked a relaunch of that investigation.


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Lucia Iacovelli, managing partner at KPMG, appeared before the committee on Thursday, and dismissed what she called “irresponsible and misleading” reporting by the CBC, and sought to distance the company from the establishment of the Isle of Man shell companies.

“Any implication that KPMG had anything to do with the CINAR fraud is false,” Iacovelli said. “Any implication that KPMG was in any way involved with the sword companies is also false.”

Several MPs on Thursday called on KPMG to provide the names of the wealthy individuals behind the tax havens allegedly tied to CINAR and other financial frauds, to which the company did not commit to provide the information.

Questions levelled at KMPG came as many witnesses and members of Parliament said the issue pointed to a deeper struggle in Canada in suppressing offshore tax avoidance.


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Senator Percy Downe, who appeared as a witness before the committee, criticized what he called a “two-tiered justice system for tax evasion” in Canada, in which poorer households are hounded by the Canada Revenue Agency while wealthy individuals shelter vast sums of cash and assets overseas.

“Try to cheat on your domestic taxes, and the CRA will likely find you charge you convict you enforce your repayment,” he said. “Hide your money overseas, and you’ll likely never be charged or convicted.”

Worsening matters, Downe said, the federal government still has only a limited grasp of just how much tax evasion is occurring under its watch, as little data exists on the issue.

“The Canadian government doesn’t even know the size of the overseas tax evasion problem,” he said.


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Janet Watson, a victim of the Mount Real scheme, another financial crime allegedly tied to the sword companies, appeared before the committee on Thursday to explain the deep wounds left by the fraud.

“Believe me, it is not a victimless crime,” she said, while offering examples of people she had met in the aftermath of the crime that had lost their life savings.

James Cohen, executive director at Transparency International Canada, said the issue of tax evasion is not just a problem involving lost government revenues, but also damages Canada’s international reputation. Those concerns are particularly acute in the context of humanitarian aid provided by Canada to other countries, at the same time that foreign actors funnel money into Canadian-owned assets.

“This all has an impact, and it all should matter to everyday Canadians,” Cohen said.

In June 2016, three former CINAR executives, Ronald Weinberg, Lino Matteo, and John Xanthoudakis, were sentenced to prison in connection with the scandal. Canadian authorities have said they will not be able to trace or reclaim the money lost by investors in the fraud.



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